Court of Appeals Upholds Refusal to Consider VA Disability
In Copeland,1In re: Marriage of Copeland (Colo.App. 2019) (Cleaned up). the husband had been discharged from the military and was receiving monthly VA disability payments, but no retirement. The wife had been a federal civilian employee for 13 years, and would be eligible to receive payments from the Federal Employees’ Retirement System (FERS) in another 7 years.
As husband’s VA disability payments were not divisible marital property, he would keep those full payments. To make up for it, the wife requested that the court use its “equitable power” to consider the disability payments as an economic circumstance, and then award her full FERS retirement to her. The trial court refused.
The wife appealed, and the Court of Appeals upheld the trial court determination. The court first noted that VA disability payments were not divisible property, and that the U.S. Supreme Court had ruled, in Howell2Howell vs. Howell, 137 S.Ct. 1400 (2017). that states could not order a retiree to indemnify the former spouse for the VA waiver, as it was effectively an end-run around the prohibition on dividing VA disability.
“The Howell takeaway is clear. Military retirement disability benefits may not be divided as marital property, and orders crafted under a state court’s equitable authority to account for the portion of retirement pay lost due to a veteran’s post-decree election of disability benefits are preempted.”Copeland.4In re: Marriage of Copeland (Colo.App. 2019), ¶ 11 (Unpublished decision).
The wife had conceded that Howell prohibited a dollar-for-dollar indemnity for disability, but argued that the disability payments were not “invisible”, and the court was permitted to take them into consideration when fashioning an equitable division of the marital estate. In a broad reading of Howell, the Copeland court disagreed:
“While the specific indemnification in Howell ‘mirror[ed] the waived retirement pay, dollar for dollar,’ the Court concluded that any reimbursement or indemnification orders ‘[r]egardless of their form’ are preempted. Thus, courts may not shift marital property to avoid the requirements of the USFSPA or Mansell’s holding, nor may they financially compensate a former spouse for not receiving a share of the military spouse’s disability pay.”Copeland.5In re: Marriage of Copeland (Colo.App. 2019), ¶ 13 (Cleaned up) (Unpublished decision).
Despite the mutual waivers of alimony, the trial court did award wife $1/mo in maintenance, just to keep that issue open for the future, reasoning that if husband received the disability and a share of the FERS, it may result in a future inequity. The Court of Appeals held that was an appropriate use of its equitable powers, since Howell said courts can consider military disability benefits when determining the need for spousal support.
Is VA Disability “Economic Circumstance” for Property?
The Copeland court presented this issue in very black & white terms: for purposes of an equitable division of property, the VA disability is pretty much invisible and cannot be taken into consideration.
The law appears a bit more nuanced than that, however. In Morehouse,6In re: Marriage of Morehouse, 121 P.3d 264 (Colo.App. 2005). the Court of Appeals considered an analogous issue of treatment of Social Security benefits in a divorce. The court there held that as federal law prohibited the division of Social Security benefits, a trial court could not offset the value of a spouse’s benefits dollar-for-dollar against other marital property. However, Social Security benefits were still an economic circumstance the trial court could consider when coming up with an equitable division of the marital estate:
“Thus, while a trial court may not distribute marital property to offset the computed value of Social Security benefits, it may premise an unequal distribution of property – using, for example, a 60-40 formula instead of 50-50 – on the fact that one party is more likely to enjoy a secure retirement. We will not presume that an unequal distribution reflects an impermissible offset of Social Security benefits, especially when the distribution is justified by a combination of factors.”Morehouse.7In re: Marriage of Morehouse, 121 P.3d 264, 265 (Colo.App. 2005).
For a more complete discussion of this issue, see the Dividing Social Security at Divorce article in the Colorado Family Law Guide.
Moreover, in Howell, the Supreme Court never said that VA disability payments could not be considered at all for the purposes of a property settlement:
“We recognize, as we recognized in Mansell, the hardship that congressional preemption can sometimes work on divorcing spouses. But we note that a family court, when it first determines the value of a family’s assets, remains free to take account of the contingency that some military retirement pay might be waived, or, as the petitioner himself recognizes, take account of reductions in value when it calculates or recalculates the need for spousal support.”Howell.8Howell vs. Howell, 137 S.Ct. 1400, 1406 (2017).
However, it’s worth noting that in Howell, SCOTUS mentioned only the possibility that property may decrease in value in the future due to a VA Waiver, not that a court may consider VA disability payments already being received.